Global Jobs Update: Assessing the Quality and Pace of Recovery

Introduction

DEVIN STEWART: I'm Devin Stewart. I'm here at the Carnegie Council for Ethics and International Affairs. Thank you so much for joining me today. I'm a senior fellow and program director here.

Today we are going to be talking about "Global Jobs Update: Assessing the Quality and Pace of Recovery" of the global economic crisis. Today we are going to be live webcast. You see the embedded cameras, which are thanks to the Carnegie Ethics Studio, which is being supported by the Carnegie Corporation.

I also would like to thank our key sponsor today, which is the ILO [International Labour Organization]. Thank you very much, ILO and Kevin Cassidy, for putting this all together. The ILO is actually doing a campaign of sorts this week. This morning our panel here was speaking to an audience of more than 100 people at the United Nations. Tomorrow there will be a follow-up meeting at Columbia University, with maybe more than 100 faculty and students, to talk about perhaps, in some ways, the most important issue in the global economy. It really is all about people. I think it's important to remember that. You have GDP, you have interest rates, you have all these statistics and numbers that people like to bandy about, but it really comes to livelihoods, people's well-being, and their dignity. The core mission at the ILO is about promoting fair and decent work.

To show how timely our panel is—and, believe me, we were deliberate; we knew that we were going to be so timely today and that we timed this just right—first of all, I don't know if you guys know about the birthday party yesterday. Happy birthday, stimulus. It was one year ago. The stimulus, which was called the Recovery Act, was $787 billion. It was the largest federal economic stimulus program in American history. Yet we are hearing every day about how it was too little or too much. In fact, I even heard our friend Joe Stiglitz, who is an adviser to our program here at the Carnegie Council—the U.S. response, on the radio he was saying, was poorly designed to the economic crisis. That was on, I believe, on Democracy Now. They were interviewing him.

One of the things that Professor Stiglitz talked about was that in the United States there is a vicious cycle, where you have people being laid off, but they want to recycle back into the job market and they want to improve themselves. It's very American to have this constant improvement. People always want to become better in America. I think that's very much an American value—not to say it's not the same elsewhere. But I have noticed that things like self-improvement or professional workshops are extremely popular in the United States compared to other places.

I will give you one example. I'm an adjunct at NYU [New York University]. The "Teaching Excellence" workshop is consistently sold out among the faculty there.

But Stiglitz was talking about the problem that universities are cutting their own budgets, and therefore cutting some of these programs that could help people retrain, retool to get back into the economy.

The other thing that we hear a lot is about the demographic pressures in Europe and Asia, even in China—it might become old before it becomes rich, is the cliché—that are creating a burden on social safety nets in Europe.

Finally, when businesses are uncertain about the future, they don't invest and make long-term decisions to keep these employees as long-term career investments, career prospects. One of the strangest side effects of the Koizumi administrations in Japan was this idea that we should deregulate the labor market. It was very popular at the time. It was seen in Japan to be a very common-sense, in fact somewhat Washington Consensus/neoliberal response to the problems of the Japanese stagnant economy. I was at an economic think tank there at the time. Our role was to try to get these labor market reform through. After deregulating the economy, the unfortunate side effect was that people were hired on as temps and then these people were vigorously and briskly shed during the recent crisis. Just because you have temporary workers doesn't mean you necessarily have a sustainable job situation.

A lot of people are wondering—and we are going to talk about this tomorrow at Columbia, I hope—not whether Japan is becoming globalized, but whether Japan is globalizing itself and this model is going to be replicated in Europe and the United States, where you are going to have this fragile, delicate, stagnant, and not very innovative economic situation.

Those are just some of the issues. We have so much expertise here.

Raymond Torres is Director of the International Institute for Labor Studies at the International Labor Organization. Raymond, I have seen some of your remarks—very expansive. I think I'm just going to turn it right over to you.

Just to give you the lay of the land here, we have asked Professor David Denoon, from NYU, to speak, from his experience as being a China-U.S. expert and also an expert on Asian economies generally, about the role of global trade and financial imbalances, and whether addressing the Chinese exchange rate, for example, would help the job situation in the United States. This is expected to be probably the most divisive and one of the most controversial issues in American foreign policy circles.

Ian Bremmer, who is another one of our trustees, was here recently presenting his top risks for 2010. Everyone, I hope, remembers what the number-one risk was: U.S.-China relations. The number-one top risk for 2010, for businesses. What he means by risk is change. Change is likely and it's going to impact businesses, the economy, and foreign policy.

Maria Jepsen is going to give us a European perspective, looking at the European policy response and also, I hope, the quality and the prospects for the European job market and how it will affect the global economy and its relationship with the United States.

We always like to try to make sure that we get a comprehensive viewpoint here. David Arkless has very kindly offered to join us. He is President of Corporate and Government Affairs at Manpower, Inc., as well as an advisory board member for the U.S. Department of State.

Just a quick plug for Manpower. Manpower supports one of our Senior Fellow projects, Rita King and, I believe, Josh Fouts, on their work here at the Carnegie Council. I would like to thank Manpower for their support and hope to keep them involved with the Carnegie Council. We share a lot of concerns, and welcome to working with Manpower and with the ILO in the foreseeable future.

Raymond, why don't you take it away and give us about a ten-minute viewpoint on how you see the global economy and the job situation?

Remarks

RAYMOND TORRES: Thank you. I will try to transform my brain into an American brain. You said in the U.S. you have to express three thoughts. In Europe it's often one thought. I'll try to multiply my productivity by three in this presentation and, indeed, mention three points.

The first is that, as you said, today is the anniversary of the stimulus package of the U.S. In most countries, the thought of the day last year was stimulus packages.

Most countries wanted to have their own fiscal strategy to stimulate the economy, kick-start the economy, and avoid the worst of the depression. The first thought that I want to express here is that I think we are entering into a new phase of the crisis, which, unlike what we thought a year ago even in the ILO, may be much more difficult, because that engine of the recovery which is fiscal stimulus and the role of government seems to be losing steam.

I think it's basically for two reasons. The first reason is that there start to be constraints in terms of fiscal policy in some countries. Those constraints are sometimes perceived, not necessarily real. For example, in the case of Europe, there was a crisis first in Greece. The crisis then went into other countries which had much better fiscal positions. But the perceived views of markets were that those fiscal positions were not sustainable. So even countries with relatively healthy fiscal positions are starting to withdraw the fiscal stimulus. I understand that in the U.S. there is also discussion now of whether the fiscal stimulus should continue or not.

So 2010, in our view, is the year of David against Goliath. One goal is to recover, to promote jobs, promote the economy. The other goal is to reduce the budget, it seems. Which of the two, David or Goliath, will win this year is going to be absolutely essential, from the point of view of both the recovery from the crisis and what happens after the crisis.

So that is the first thought I want to express about how things are going vis-à-vis the crisis.

The second one—and I'm really happy to be here at the Carnegie Council because you are the experts—has to do with the issue of financial reform. Despite what is said—and there is a lot of discussion about aging populations, the need to prolong the retirement age; in some countries there is again discussion about labor market flexibility, the return to market-oriented approaches and so on—in fact, the crisis did not originate in that. It originated in the financial sector. It was the excesses of the financial sector that created the crisis. If I say that from the ILO, you will say, of course, it's an ILO view, it's a labor view. But just read the BIS, the Bank for International Settlements, reports. It is the institution which deals with the central banks. It's full of financial experts. They identify very clearly the flaws in the financial system as the key cause of the crisis.

The report that was published in July of last year. There was a conclusion which was saying basically that this is the damage it did, and we don't want next year to be in the same situation because it would be very difficult to predict what would happen in the case of a reformed financial system.

I have to say that the situation is exactly the same as last year. There was more or less agreement that three things had to be done to re-regulate the financial system, avoid off-bank types of transactions in the U.S. Before the crisis, more or less 50 percent of all financial transactions were not subject to typical bank regulations, prudential control, in the U.S. The same happened in many European countries. Perverse incentives—people were paid not necessarily according to their performance, but according to risk criteria, not necessarily very transparent. Then there were accounting issues as well, technical accounting issues.

In none of the three areas has anything been done. We hear a lot of promises from the profession. This is very welcome. Many bankers say, "Never again. Don't worry. We learned a lesson. We are now going to adopt codes of conduct. Of course, we didn't know it would be so bad." They want to avoid regulation. But, in fact, we believe—and the G-20 communiqué was very clear—that regulation, a new approach to the financial system, is absolutely central. This has not happened. Not only that, the financial markets are actually the ones which sanction fiscal deficits, and actually they are introducing a bias towards reducing the fiscal deficit too early, and therefore risking breaking the stimulus which happened in the very fragile economic recovery that already took place.

So that is the second thought: Why is it possible that a year and a half after the start of the crisis, still no serious reform has happened in the financial system? I'm just an economist. I just would like to understand it. I'm really happy to hear your views about that. It's very difficult to understand, why nothing has been done.

The third thought has to do with what happens to society. The crisis started as a financial crisis. It became an economic crisis, then an employment crisis. Thirty-four million jobs have been lost in the world as a result of the crisis. What is worse, lots of people drop out of the labor market, even in the U.S. We see that unemployment figures go down, but employment figures also go down, which means that people leave the labor market. They drop out of the labor market. We also know that once you drop out of the labor market, it's very difficult to retrieve a new job, participate, and so on.

All I mean is that the question now is whether what has become a labor market crisis could become a social crisis. To what extent can society stand the situation where the origins of the crisis have not been reformed? Before the crisis there was a very significant increase in income inequalities. I know in the U.S. median wages had not increased very much in real terms. According to some estimates, they had stagnated, those wages. That's why people borrowed and so on. So there was increasing inequality before the crisis. After the crisis, it seems it is hitting disproportionately innocent victims from the crisis. So again, there is a further increase in inequality, elevated by very limited employment prospects.

To what extent—that is my third thought—is society able to stand this situation?

I'm lucky to be in the U.S., where people tend to be more optimistic. I just read recently an opinion poll, where U.S. people tend to be optimistic about the future and so on. The polls are very different, for example, in France. People tend to be very pessimistic in general. Even when things are good, people complain all the time. You just have to take a taxi in Paris to understand that, how people comment on the events and so on.

But even controlling for country-specific idiosyncrasies, still it is the case that there are perceptions that the developments before the crisis were unequal and the response to the crisis might be becoming unfair, which, for the World Day of Social Justice, is a real issue.

Thank you.

DEVIN STEWART: Thank you very much, Raymond. In fact, you just segued into the other significant date this week, which is that February 20 marks the annual UN World Day of Social Justice, which inspired this whole effort from the ILO. Thank you for reminding us about that.

I'm going to turn it over to David Denoon. A little bit about Dr. Denoon. He is an eminent professor at NYU, where he is Professor of Politics and Economics. He is a member of the Council on Foreign Relations and the National Committee on U.S.-China Relations. He is also Chairman of the Editorial Advisory Board of Great Decisions.

It's great to have him back. He spoke here about one of the ongoing themes that we address at the Carnegie Council, which is "the rise of the rest," which is, in fact, the title of the class I teach at NYU as well. In other words, I don't buy this notion that the rise of the rest means the world without the West. Unfortunately or fortunately, the emerging economies—we need one another. The emerging economies need us; we need them. China is an engine of growth. China relies on American security, for example, securing trade routes, foreign capital, foreign ideas. It is a very complex picture.

David Denoon gave an excellent talk on the strategic and economic consequences of the rise of China and India, which we use in our Rise of the Rest video. Just a quick plug. We will hold the third iteration of that theme on March 9 here at Carnegie. Please join us for that. It will be fantastic. Parag Khanna will be on that panel, for example, Nick Gvosdev, and other people. Great minds.

Dr. Denoon, please give us a sense of this very contentious issue of U.S.-China imbalances, economic imbalances, and whether we need to focus on that this year—the jobs picture.

DAVID DENOON: First of all, it's a pleasure to be here and to have Devin's gracious introduction.

I agree with the person that he cited. Ian Bremmer is a country risk consultant, and Ian's claim that U.S.-China relations could be the most contentious issue this year I think is accurate. We can get into the non-economic issues that are important. Some of them have an economic sub-cast to them as well.

But what I want to try to do today is give you a sense for why the trade imbalances have developed and why it's so difficult to get them resolved. My basic conclusion—not to send you home crying—is that there is going to be a stalemate. I don't see any quick resolution to this. But I want to lead you through the arguments so that you understand why the Chinese see it differently than we do. On the other hand, most economists agree that the Chinese currency is undervalued. That means that if they allowed market forces to operate, the value of their currency would rise.

Why did the Chinese want to have an undervalued currency? They want it for several reasons. First of all, it helps them promote their exports. It helps them develop market share. It also helps them develop a foreign exchange reserve, and that has two benefits. It allows China to avoid being pressured from outside, because, when they have enough of their own foreign exchange, they don't need to pay attention to the World Bank or the IMF or commercial bankers. Finally, one of the reasons why they want the foreign exchange reserve is that it's primarily denominated in dollars, and it gives them an enormous influence over American policymakers, which we can discuss in greater detail as we proceed.

So there's no question that the Chinese want to have the currency undervalued, and there's no question that they do intervene to keep it undervalued. Those facts are just widely understood. The question is, why has the world accepted this, and why is there likely to be little change, at least in the short run?

The world has accepted this because, for a sizable period, and certainly from 2001 to 2006, the countries that were the principal trading partners of China—and that includes the U.S.—were getting cheap imports. They enjoyed those cheap imports. Because the Chinese government is willing to keep consumption inside China down, it meant that the export revenues that were coming from those exports were going to the government and the government controlled them. Unlike what would happen in a more open economy, the government was able to control those assets. So you see China moving from having from very minimal foreign exchange reserves more than a decade ago to having the largest foreign exchange reserves in the world today.

That transformation is a dramatic transformation. It represents, as Devin said earlier, not only imbalances, but it represents a shift in power.

Why have the Chinese resisted letting their currency move up? For several reasons:

First of all, they very much see their long-run future tied to manufacturing. They are now the world's largest manufacturing exporter. They see developing market share as absolutely critical to their strategy. In the same way that many large corporations in the 1960s and 1970s, which first started to move overseas, saw developing market share in key countries as essential, the Chinese are following that model.

Secondly, the Chinese have a political system which, we all know, is authoritarian and they don't have a residual of domestic political support, except what is based on their economic performance. The Chinese leadership is absolutely convinced that they have to perform economically, and any moves that would threaten that economic performance would be a threat to the political leadership. They will talk openly about this, if you speak with them and you are talking with specialists.

So why would a currency change be destabilizing? Well, it could be destabilizing for two reasons. First of all, it would require a great deal of adjustment. Basically what has happened is that China devalued its currency in 1994, three years before the 1997 financial crisis, and they kept the currency basically constant between 1994 and 2005. Then between 2005 and 2008, they let it move up by a total of 14 percent. But since 2008, they have basically kept it constant, even though there has been great pressure on them to let the currency rise.

What this means is that they consider stability inside the country and not making adjustments—that's the most important element, not making adjustments—the paramount objective that they have

The Chinese have had, referring to our prior speaker, a major stimulus program. In the long run, they say that they are willing to try to increase consumption domestically. But they still have, among large countries, the highest savings rate of any large country. The Chinese save somewhere between 35 and 45 percent of their income. No other semi-industrialized country saves anywhere near that level. Those savings allow the government to make these policy choices that I have defined.

Why has the rest of the world accepted this? We have accepted it because, as I mentioned earlier, the cheap imports are an advantage in a period, certainly, when there was rapid economic growth, the early 2000 period. However, since the onset of the financial crisis in 2007, the focus of the major importing countries, the major industrial countries, has been worries about deflation, not inflation. As deflation became a principal concern, then the question of the prices of Chinese goods became less acceptable to those countries and you have seen a higher level of debate about this.

I'll just end by saying that the reason I think it's likely that there is going to be a stalemate on this question is that this is very important to the Chinese. They show no interest in changing their policy. They don't have to, as I said earlier, pay attention to the major international financial institutions. They don't need the international commercial banks or investment bankers. They have their own resources. Because they are not vulnerable in that sense, and they learned a great deal from the 1997 financial crisis, they are not likely to pay attention to pleading from outside.

So the answer, as far as I'm concerned, is that the other countries are going to have to make serious adjustments. We in this country are going to have to raise our savings rates. Both the last administration and the current administration have been incredibly profligate. We can't continue with the kind of budgetary deficits that are being currently projected. We are going to have to make major, wrenching changes in this country.

That will facilitate our ability to bargain more actively with the Chinese. But I think, going back to this question of risk, the big risk is, if the Chinese don't raise the value of their currency, then we are going to be in a situation where there will be increasing protectionist sentiment. I think that's probably what Ian Bremmer was referring to earlier. I don't see this leading to actual conflict, but I do see it leading to highly contentious economic negotiations.

Thanks.

DEVIN STEWART: Thank you very much, Dr. Denoon.

I just was reading an article by British First Secretary of State Mandelson, who is making a very similar argument. From his perspective, the Chinese government is not going to accept having international stipulations imposed on it. Therefore, one expedient solution, in the meantime, before these global economic adjustments take place, is to shift and adjust the global governance in, for example, the World Bank and the IMF. We already have the G-20, which is a good step in the right direction, but that might be one thing that countries might put as a priority on the international agenda. Just a suggestion from a humble place in New York City.

I'm going to turn it over to Maria Jepsen. She is Director of Research at the European Trade Union Institute. She is also a senior researcher with responsibility for research on comparative social policy, gender issues, and research policy.

Maria, take it away. Thank you very much for coming.

MARIA JEPSEN: Thank you very much for the invitation.

I have been asked to give a few points on the situation in Europe, the recovery packages, and what the implications will be for the future, and what the quality of the recovery could be in the European Union.

I have three points that I would put on the table. The first is a brief explanation of how unprecedented intervention by the states and the social partners took place in Europe, what they actually did, what this implies for the future prospects, and then a little bit about what kind of debate is emerging in Europe about labor market reforms in the light of recovery of the economy.

First, I would like to emphasize the fact that just last week the fourth quarterly GDP growth rate for Europe was released, and it was only 0.1 percent, which was 0.1 percent below what they expected because the expectations were 0.2 percent, meaning that the economic recovery is very fragile still. It is not at all confirmed, and a double-dip scenario is something that could be likely if we have a very, very swift and brutal fiscal consolidation, as was put forward by the former speaker.

What happened in Europe last year was that the recovery packages put on the table were unprecedented and they were extremely swift and they were shovel-ready, meaning that they would have a direct impact on the existing economy as it stood today. There were very, very few measures in the recovery packages that were actually very forward-looking, forward-looking in terms of what economy we are going to head towards. Are we going to have a green transition? Can the recovery packages be used for the green transition?

I would say, in a certain sense, this was normal, because the recovery package was there to kind of avoid a depression. It was there just to make sure that this was just a recession. They had to be shovel-ready. They had to have an immediate impact, not an impact in five or six years. However, this poses, of course, a problem for the future. I'll come back to that.

In this sense, we could say that the recovery packages did have an impact. They had a very positive impact on the labor market. There were institutions and there were social partners to sustain and actually deal with the implementation on the ground. In a sense, the impact of the recovery packages had been extremely different on the labor market across Europe, with unemployment basically not going up in Germany—this is one of the economies that is really one of the hardest-hit by the crisis—whereas in Ireland and in Spain, the impact has been enormous on the labor markets. Unemployment rates have simply shot up. Unemployment has shot up.

Employment has really been destroyed, and this despite that their economies, in terms of output gaps, were much less hit. So the impact of the crisis has been very, very different in the labor markets and has had to do with how the institutions that are already existing, how social partners, and how the state were able to go in and try to make sure that the financial crisis did not completely blow out the bottom in the labor market, which implies that unemployment rates in Europe have gone up from about 7.2 percent at the beginning of 2008 to 10 percent today. Looking at all Europe, where normally we expect unemployment rates simply to soar, they have not soared as much as they have in the U.S. The unemployment rate has gone up less than what was predicted. Notwithstanding, at the end of 2010, we still expect that about 7.4 million jobs will have been destroyed in Europe. Big figures, a huge setback with regard to what has gone on on the labor market.

As I said, a lot of the measures were shovel-ready, ready to implement, and they had to do with existing industrial structures, with regard to industry that already existed, a little bit less forward-looking.

So what does this imply for the future? The future is now, because this is the time when we start saying we are in an economic recovery and we have to prepare for the future. This is now, when we have to be looking ahead and not looking back. We have to be dynamic and looking forward.

What are we doing? We have had a lot of restructuring in Europe, a lot of job restructuring. Restructuring in Europe means also that we have a lot of relocation.

Workplaces move from one country to another country. This, of course, increases tensions between countries. It has a huge impact in terms of what kinds of policies you can implement, in what countries you can implement the different measures.

What we are going to go forward with now in the European Union is restructuring and relocation that is going to set the industry for the future. In view of the fact that we did not put as much of the relaunch packages into what we would call the green transition as we should have, we probably have a back-lag. We lost an opportunity.

There was a window of opportunity that was not taken care of at that point. On the other hand, jobs were saved and the productive capacity was maintained.

Companies are now looking to the future. They are restructuring with regard to how to position themselves in the future. The future is uncertain. This uncertainty is creating, of course, a tendency not to hire and a tendency also to, first of all, use the capacity of human resources you have within the enterprises to start with and see what happens and then, later on, hire more people.

Where does this leave Europe today? It leaves Europe with unemployment rates going up, with fiscal debt that in some countries is rather high—- in other countries, not as high, of course—and it leaves also Europe with a demographic challenge that is quite substantial, and it leaves Europe also with the challenge of facing the green transition. Europe was, two years back, on the forefront of tackling the green transition. They are today losing this opportunity to be able to go forward.

So we are in the middle of a "trilemma," a trilemma that is called fiscal consolidation, demographic challenges and their implications for the welfare state, and the green transition. This trilemma seems a big puzzle. This is what Europe has to tackle and this is where Europe has to look forward.

What kinds of policies do we need to do this? What is being put on the table is one of fiscal consolidation—fiscal consolidation because financial markets are looking at Europe and saying this is not viable, putting the euro under pressure, which means that fiscal consolidation will probably take place much faster than was foreseen. This implies that welfare states will basically be cut right away. Cutting into welfare states is a very, very unpopular measure, but it shows the markets that the politicians are serious and it saves the euro.

The third thing will be the green transition. The fact is that with the economic uncertainty, companies are not investing. Companies have not started to invest. States will not be able to invest in the green transition because they have to withdraw, they have to make fiscal consolidation. This brings us a very, very bad situation, where we will not be transitioning, we will not be able to deal with the demographic challenges in an appropriate manner, and we will consolidate the fiscal debt.

So this is a very, very bleak picture of the future.

Of course, one could paint something that is much more positive, and that is one where we start saying that fiscal consolidation is not the priority today, that what the priority is today is to build a society for the future, one that bets that Europe can still remain competitive and can still invest in the green transition, can still invest in its welfare states.

If we look at some of the more successful countries in the European Union, these are small countries, admittedly, but they are successful—the Netherlands, Denmark, Sweden, the U.K. They are also among the countries that have the highest job quality. These are the countries with a high employment rate. They basically have higher employment rates than the U.S. They have extensive welfare states, the U.K. a little bit less. They invest in their populations. Social protection is not a cost; it's a social investment, because it upgrades its population. It provides them with skills. It provides them with education. It provides them with the possibility of taking risks in their lives, and therefore become innovative and contribute to a more successful economy—showing that there is still some capacity to take this trilemma which we are facing in Europe—globally, actually—and that there is not only one solution to put on the table, which is deregulation and fiscal consolidation, but there is also one that is called investment, which will assure that the future can be successful, with quality employment.

DEVIN STEWART: Maria, thank you very much. Bleak, yes, very bleak.

There are two characteristics that I have noticed among people in the executive recruiting business. I have a lot of friends in Asia who are either working in large executive recruiting firms or are entrepreneurs among themselves running firms like this. Number one is that they have incredibly good intelligence. They know what the gossip is. They know what people are saying and what the conditions are on the ground.

The second thing is, they tend to be optimistic. I don't know why that is. Maybe it's because there always seems to be some opportunity of reconfiguration. The way you described restructuring—maybe, in some ways, there is a role for companies to help with the restructuring, and they can see it as a positive net sum from their perspective, although it does create political and also cultural tensions in communities. That's what we were talking about in December in our migration conference at Sophia University in Tokyo. We held a conference with Carnegie and Sophia called "The Right to Move: The Ethics of Migration Policy." It was very interesting.

I am going to turn it over to David Arkless. I think he might say something positive. I don't know. You are at the end of the panel, so you can protect us from the attacks.

DAVID ARKLESS: This is great. Usually, with a name beginning with A, I get to go first and then everybody proves me wrong. At least it's the other way around today.

I have to be positive and upbeat, I guess, so I will try and do so.

By the way, David, I particularly enjoyed your comments about China, as I spend much of my time working with the Chinese government, in terms of their social and labor policy. More of that later. I agree with all of your comments on what their focus is going to be.

But just one very witty comment I saw in The Washington Post recently by an economist. He said, "You know, if China called in all of its dollar debts, we'd have to change the name of a street in New York to Great Wall Street," which is a bit scary when you think about it that way.

Actually, if you look at China—one last word on that before I go to something of a global picture—if you work closely with the Chinese government, you find out that their number-one agenda issue is an internal issue. It's the issue of potential social unrest in China. If you analyze deeply the Five-Year Plan and its annual revisions, which we do—because we helped build part of the construct of that plan—just about everything economically, development-wise, foreign relationship-wise, is built around trying to suppress or to mitigate some kind of potential social unrest in the country.

It's very interesting. I feel the way you do, that China just has this huge pivotal role to play. It's going to be interesting to see how that plays out.

I guess the reason that I get invited to things like this is the practical end of stuff, so I'm going to tell you what we see out there in the marketplace. We are the world's biggest employer, outside of governments, of course, because in the world of work, one person in every five works for a government or a government agency. That's, of course, if you include armies, as well as government appendages. We are a huge employer. We have about 8 million people around the world working in 100 countries.

People like me, the few of us that run the corporation, get out a lot. We have, usually, an Internet address of davidarkless@boeing747.com. This year already, starting on the first of January, I have been to, I think, 16 or 17 countries. I'm all congressed out. You know what it's like at the beginning of the year. It's the World Economic Forum, the Arab Economic Summit, the Global Economic Symposium, the ASEAN Economic Summit. I have sat at these things and listened to what they are all saying. I'm going to try and reflect that into the practical issues that we see happening in the marketplace.

The first issue is, yes, it seems that there are certain indicators that show us that we are coming out of a recession. Is it creating jobs? Are we a jobless recovery?

Before I go into that, I would just like to say that all of the problems that were there before the recession—guess what? They haven't gone away. So we have a whole bunch of structural issues that were there before the recession exacerbated certain issues and made things twice as bad as they were before. So I, too, get depressed.

But there is some light at the end of this particular tunnel.

If you look at unemployment today, it's unprecedented—9.7 percent in North America, over 10 percent in the eurozone, with some countries having youth unemployment between 40 and 50 percent. There are some really serious issues there for the major Northern Hemisphere economies.

Don't forget, though, not the whole economic world has gone through a recession. Some countries carried on growing through this period, specifically some of the emerging market economies. Some of them have actually moved up the competitiveness rankings because they managed to sustain their growth, focusing on internal and domestic consumption. So there are some good bits of the global jobs market, if you like.

We have been around for about 65 years. Of course, what we do when we get into a little economic downturn or a recession like this one is we track the indicators that will tell us when hiring will start again. Usually what should have happened in this recovery, given the housing restarts, slightly better consumer confidence, industrial output up in a number of countries, is that we should have seen from about two to three months ago a significant adoption of temporary workers by the large industrial and manufacturing companies. That has not happened. It's the first time in 60 years that that has not happened. When the jobs market comes back, first of all, people hire temps, then they hire contractors, and then they start laying on permanent employees. So something has changed fundamentally in the psychology of the world of work because of this recession and the way that companies have been impacted by having to lay workers off and the huge costs of that.

It has been similar in Europe, which has a very different social structure to the Northern American countries, if you like.

The things that we notice in the markets are very disturbing from a social justice point of view and from a moral point of view globally. During this recession—and again, we track these things—we have seen a huge rise in the following issues:

Number one is a very fast rise in human trafficking. We thought up until last year that there were about 30,000 to 35,000 people a day trafficked into modern-day slavery. It appears—and we have done a lot of work with the ILO, the IOM [International Organization for Migration], various human trafficking organizations—that the numbers could be up in the 60,000-a-day level of people being trafficked around the world to be used as commodities, mainly in prostitution.

So that's number one.

The second one is a huge rise in the number of displaced migrant workers, especially in places like the Middle East, for construction, where the construction companies have closed down because of the economic crisis, and these workers, who are stateless, who have no ID cards, are just sitting outside of places like Dubai, in the desert, with no food and no water. We see on a global basis—in Indonesia as well, places in Malaysia and Pakistan, in the Middle East and Africa—a huge rise in displaced workers that have gone from their home country to somewhere else to get some decent work.

The next one is a huge and very fast acceleration of what we call social bifurcation in the major countries of the world. Social bifurcation means that the people at the bottom of the pile are getting less opportunity to become literate, to go into learning, to get some skills, and to be able to further their way in the world of work. This bifurcation used to be bridged by working class into middle class, into fairly wealthy people at the top of the triangle. That's not happening anymore. It looks to us like the middle class and upper class are accelerating away from an underclass in most of the countries that we operate in, everywhere from South Africa to China to India. Indeed, in many, many European countries we see this huge number of people at the bottom of the pyramid who are long-term unemployed, who have no access to learning, training, and are becoming increasingly marginalized in society. We think that's a huge problem.

The last big trend that I would like to mention is the huge and fast rise in youth unemployment on a global basis. The very fast rise of people under the age of 23 who can't find work, who are becoming the long-term unemployed, who will never find their way into the world of work is very, very disturbing.

Those issues strike us on a uniform basis in the Northern and Southern Hemispheres, at different levels in different societies. All of the stimulus package work that we have seen, in our opinion, has resulted in very little job creation. In fact, that's widely admitted in North America. It was getting the financial community out of the mire. Maybe "Stimulus 2" is focusing on jobs, for real job creation in North America.

In Europe, of course, we didn't lose as many jobs because Europe is much more socially protected. Funnily enough, this whole process of the U.S. laying off workers, of Europe keeping workers has resulted in North America, specifically the USA, getting another advantage. It always seems to people, when we observe the world of economy, that whether the U.S. plays its financial and economic cards right or wrong, it always seems to come out on the top of the pile. And it worked again in this recession. I'll tell you why.

When economic output went down at the beginning of this recession and in the middle of it, North American companies laid off workers faster than anywhere else in the world. It is really easy to get rid of workers. Normally what would have happened by now is that, because economic output is on the rise, they would have started to rehire people. Psychologically they are afraid to do so in the USA. What has this resulted in? A bonus for North America. North American productivity has risen yet again and pulled away from European productivity. European productivity has dropped because we have maintained the jobs in Europe, mostly with part-time work or government subsidies. Unfortunately, with the output ratio to productivity in Europe, Europe has lost productivity against the U.S. again.

If you want to look on the bright side for North America, you have another productivity bonus this time around. So congratulations. It's all about creating jobs now.

In a sense, we feel that we are in a crisis of demography versus economy for the next 20 to 30 years. Places like Europe lose huge numbers of workers. In the next 20 years, Europe loses 50 million workers because of fertility rates and demographics. At the same time, nation-state politicians in Europe are saying, "No, no. We should close the borders. Don't let any more skilled workers in, because we need to get everybody in Europe back to work."

That isn't really the problem. Guess what? In Europe—and indeed, in North America—there are plenty of open jobs. It's just that we can't find people with the right skills to put into those jobs. In Europe today we calculate that there are 3.7 million unfilled jobs. How can that be, when you have eurozone unemployment above 10 percent? You think, hold on a minute, there should be special programs to put those people into those jobs. Unfortunately, today we do not have the mechanisms to do that.

You say maybe North America is a bit more efficient at filling its jobs? No, it isn't. There are 1.7 million unfilled jobs in the USA today. Wouldn't it be great if you could fill every one of those jobs? It would help the economic recovery. It would actually start to grow certain industry sectors. But we have a patent inability to get the right people with the right skills into the right jobs at the right time.

We must do something to address those two issues of supply and demand in national markets and, secondly, recognize that we need policies on a global basis to promote really responsible work migration from countries that have a fertility bonus to countries that are losing many, many millions of workers.

The psychology has changed. Organizations just aren't hiring again. We are saying, being in the business of hiring people at every kind of level, "Come on, guys. Get hiring again. We need to get back to work. We need to get America back to work." It's our current forecast that to return to 1989 unemployment levels will take another five years. This is going to be a really slow jobs recovery, if you like. At the same time, we have to fix all of those problems of demography, the falloff of population in most of the developed countries of the world, whilst attempting to do something about social bifurcation and the distribution of wealth in the fast-growing emerging market economies.

If we can fix those things, we should be in pretty good shape. And I'm feeling optimistic about that.

The last thing is the global agenda. What we are recommending, as big corporations, and what we are talking about to the UN, the ILO, nation-state governments, are the following things (and then I'll wrap up and let some other people talk):

We think that we need, on a global basis, an increased effort to regulate the movement of people around the world. There is no organization that has responsibility for this. The UN doesn't. The IOM has no teeth as an international organization. Nobody takes responsibility. Wherever there is a vacuum in regulation and governance, guess who fills the vacuum? Criminal activity fills the vacuum. There are 250 million people working outside of their country of origin today. We think at the IOM that could double over the next 20 years. If you want to see half a billion people potentially trafficked around the world, let's just leave things as they are today. So number one: Increased efforts with our colleagues at the ILO and various UN organizations to better regulate the movement of people around good governance, around the world.

The second one is an increased and coordinated effort to reduce the abuse of workers everywhere in the world. This means giving every worker the right to what we call, between unions and big corporations that are responsible, the right to free association, to join with other people to stand up for their own rights. We stand for that, along with the ILO on a global basis. We must accentuate that.

Especially, we need to stop the practice of forced and bonded labor, which is growing hugely around the world. This is the exploitation of human beings as commodities in almost every country in the world. You think it doesn't happen in the USA? Oh, yes, it does. Maybe 13 million people working against their will in North America, who have no identification, who have been trafficked here. That's on top of the 4 million or 5 million or 6 million that we know have come here from Central America over the last two to three years.

The next one is, please, we must stop trafficking in persons around the world. We need to give international policing organizations and governments more responsibility and more assets to stop the allowance of criminal gangs to traffic women and children from one place to another for the good of the criminal community and pushing people into prostitution.

Further, to accentuate efforts to reduce this social bifurcation that I talked about on a global basis. We are already working with the governments of India and China to try and recognize how we can use economic measures to stop this huge rift in society in various countries. It is happening in developed nations as well.

Finally, a huge, huge focus which we are encouraging on a global basis to reduce the amount of youth unemployment, which is growing rapidly around the world.

Without kids coming into the workforce today, we will not be able to grow our global economy. We are in a process today of protecting certain kinds of jobs and institutions that do not allow them to get the right skills to get into the workforce.

So if we can do those few simple things, we should be able to put the world right and come out of this recession feeling really bright and breezy, and actually create some global growth.

Thank you very much.

DEVIN STEWART: Thank you. Thank you to the panel. I hope everyone feels bright and breezy when they leave the room today.

I would add to your very modest five-point plan, I think it was. Along with free association, freedom of speech and expression is at least as important, and maybe even more important, in the sense that if you don't have free information flowing and there is not an incentive to expose the problems that are happening, the police can easily fall into the same traps that the rest of governments fall into, which is massive corruption. So, absolutely, freedom of expression, freedom of speech.

One thing that I have learned from my experience and my research is that freedom of religion is also important, in the sense that, at least in the U.S. and European experiences, it ended up helping to develop civil society groups which helped in fighting these abuses that you talk about, David.

Thank you so much. That was a fantastic speech—all of you.

Questions and Answers

QUESTION: It has to do with what David Arkless said at the end of his talk that we shouldn't be protecting institutions that prevent young people coming into the workforce. Can you give some examples of where that is happening and how it's happening?

DAVID ARKLESS: If you look on a global basis, the institutional barriers to getting young people into work typically—if you would forgive me for saying so, anyone from the academic community—we have not reconstituted and evolved our systems to allow young people to do things (a) that they will benefit from; (b) they would be good at; and (c) would contribute to an economy.

When I talk about this and about countries or cities breaking down the institutional barriers to getting the supply-and-demand thing right, people always say, which place is the best in the world at doing that? Of course, for many, many years, people have talked about the city-state of Singapore, which does very well in terms of bringing the right kinds of skills to the right place. But it's a tiny place. We need something bigger to use as a good example. My best example is a city. It's the city of Shanghai. Although they call it a city, it's actually bigger than 20 European countries. It's 26 million people. What Shanghai did was, it found, five and a half years ago, that it was having youth unemployment—in other words, unemployment in people under the age of 23—increasing at around about 3 percent every six months. The city government couldn't get their head around this, because they were having a million new immigrants from the countryside coming to Shanghai. The economy was growing, at that time, at 16.5 percent. Yet they found that youth unemployment was growing and they found that people coming from the countryside actually couldn't find any meaningful employment.

So they did a forensic analysis, of what we would call in business, market needs. They went out to 450,000 institutions and companies—stay-at-home, private, WFOEs [Wholly Owned Foreign Enterprise], the whole thing—in Shanghai and said, "We want a strategic plan for your company or your institution. We want to see how you are going to grow, how you are going to expand your manufacturing or service base. We want, down to the man-hour for every competency that we list to you, an exact forecast over the next one, five, and ten years of everything you will need, down to the man-hour."

Guess what happens when the government asks for a survey to be done in China? Everybody does it. I know, because we applied this survey to 450,000 companies and institutions.

What disturbed me, though, was that we got a 107 percent response. It was so good that some people did it twice, undoubtedly. We factored the 7 percent out.

What they did was they produced a talent map for the next ten years. That wasn't where they stopped, though. They then said, "Let's do an analysis of this," and they found out the vocational skills, the technical skills, the academic requirements/skills, in every industry sector and segment that existed in that city, in every district, and then produced a plan to go to young people at the age of 16, give them Mandarin-based, validated psychometric test and assessment, vocational profilers that would tell them which academic stream they would likely be successful in and be most motivated for, which vocational skill they could train for, which kind of technical skill they should be encouraged to go into.

The government then went one step further and said, "By the way, young lady, it seems you would be very good at value-added logistics. How would you feel if we send you to the new Shanghai vocational skill university, pay your three years' tuition, give you free accommodation, guarantee you a job when you are finished and we'll pay the salary for the first three years. Oh, and by the way, it says on your characteristics here that you are very entrepreneurial, so we would like you to join this small to medium-sized enterprise, because we realize that the SME sector is going to drive the growth of Shanghai."

That's what I call reducing barriers to getting young people into the right place at the right time. We do not have those mechanisms in most developed economies. To be fair, some cities—Chicagoland [the Chicago metropolitan area] is talking to us about whether we could do that for Chicago. The EU is talking about taking a small country, like Luxembourg, and doing that kind of forecasting. But the secret is moving backwards in the supply chain of skills and making sure that the institutional barriers are not there and that young people can find the skills that are likely to make them successful for the future.

Sorry about the long story, but Shanghai absolutely nailed it. If you want to see a case study of that, just go to our website and you will find a fantastic case study of how to get supply and demand right.

QUESTION: In what industries are those 2.7 million jobs available? I think that was the number you mentioned.

DAVID ARKLESS: In North America?

QUESTIONER: What was the figure in Europe?

DAVID ARKLESS: It's 3.6 million. And it's in the service industry, high-end engineering, value-added logistics, anything that supports the aging population—medical, paramedical, doctors, people that help to run clinics, people in the security business, so basically everything that is supporting the aging community—and the distribution and movement of goods and services around an economic region or the world. Huge numbers of open jobs. The EU is trying to do something about addressing that skills gap, if you like, but it takes such a long time, with the rather more archaic institutions that we have in Europe.

DEVIN STEWART: I noticed a common theme among—actually, the first three panelists were talking a lot about psychology and the mood of governments, the mood of companies. I think, David, you talked about the mood to some degree as well. I just saw today an op-ed arguing that Obama should start doing fireside chats, something like FDR, to pep-talk the country into having its confidence again.

Is there a non-market response to triggering a more optimistic mood and spurring hiring? Does anyone want to take that idea?

DAVID DENOON: I would find that to be potentially useful, but it's not what ails this country. We have been through a wrenching period, where the macroeconomic policies facilitated a gross misallocation of resources. We have moved resources into the financial sector way beyond what we need. To get to the question of reallocation, there are hundreds of thousands of people who will be leaving the financial sector. Many of them have some useful skills. The question is, how do they get redeployed?

But as someone who teaches in a university, I have seen over the last decade a growing percentage of people between the ages of 18 and 25 convinced that the only promising area for them to pursue was finance. Thankfully they no longer think that. But until we start getting growth in manufacturing, until we start expanding the higher-skill-set jobs, it's not easy to convince someone to shift their aspirations.

But I also want to get down to basic macroeconomics. This country has been so profligate with its high deficits, borrowing from abroad, and completely unrealistic policies in off-budget financing—at one point in my career I worked for the Export-Import Bank, and it was only then that I realized how many of the U.S. government agencies or government-supported agencies are not on the budget. They are off-budget. This is a far larger number than the current budget deficit.

All of you have recently heard about Fannie Mae and Freddie Mac and their problems. But there are all kinds of other off-budget financing that the public just doesn't understand, like Medicare, Social Security. These add up to trillions of dollars that basically have been hidden by the political process, which has not had to deal candidly with where we stand. To put it bluntly, our real incomes and our asset levels are much lower than most Americans think. We are going to have to adjust to a very different future. Not only will we have to increase our savings rates, but we are going to have to reduce the benefit levels of many, many programs. That adjustment is going to be a wrenching adjustment.

I'm not opposed to leadership from the president, but I will say that neither the Bush administration nor the Obama administration has been candid about the budget situation. The most recent budget submitted by the Obama administration was a disaster, because it failed to convey to the public what the real situation is.

There is all this excitement about how wonderfully flexible the Federal Reserve was. Well, those are now government obligations. When people say the Federal Reserve expanded its balance sheet, what that basically means is that they lent money that they didn't have. Who did they borrow it from? They borrowed it from people outside this country.

When we decided as a country—and the Congress didn't thwart it—that we were going to continue to operate in Afghanistan and we were going to have a variety of foreign policy initiatives, we are asking other people to lend us money so we can carry out these activities. I don't think the average American understands that. They think this is coming from tax revenue. It's not. Until there is a recognition that we have been just spending way beyond our means and that our real incomes, our real asset levels are substantially lower than stated, we are not going to have a candid discussion.

So I really think that, sadly, our political leadership has been totally disingenuous. It has nothing to do with political parties. It's on all sides of the political spectrum.

RAYMOND TORRES: I don't know if you want to respond to the first question about hiring. But I would like to react to what you said, David, in the spirit of debate, and say, at the same time, I agree with your point about global imbalances. The crisis could be seen as an opportunity to address key problems that preceded the crisis, like global imbalances, financial reform, and a more balanced mixture of market and state, these three.

Your point was on the first, on the global imbalance. I totally agree.

I would agree less—I'm not going to talk about the U.S. fiscal situation—if all countries move now toward a much tighter fiscal stance, it's going to be not only more difficult for the U.S. itself—because, of course, it's trying to also move to a much tighter fiscal stance, and everybody tries to reduce fiscal deficits—but also for the entire world economy. We are in a situation where everybody wants to export and nobody wants to import. It was possible before because the U.S. was an importer of last resort. It's no longer possible. But we have to be careful on the global level not to tighten all the fiscal stimulus which existed last year too quickly. Otherwise, there is a risk of a kind of double-dip—really, a very difficult situation. That's the point I would like to emphasize.

The other thing is about the experiences that David mentioned before. I think these are all extremely relevant, very interesting case studies, and so on. However, I don't think it's possible to just create hiring and mollify animal spirits, if you wish, and recruitment with these experiences. You need also—and I think this is complementary—macro conditions and framework conditions which are conducive to hiring. For example, I think it's a good policy in Europe to have tried to retain jobs in otherwise viable enterprises, even though it has led to some productivity decline. But whenever there is a recovery—we hope very soon—these enterprises will not have to go through the process of hiring people or retraining people who already would have been in the enterprise. It would have been a loss of human capital, a loss of investment. Therefore, I think these are also good practices.

So I think we need a bit of a perspective in order to analyze what works and what doesn't.

DAVID ARKLESS: It's going to be interesting to see what happens. The derby has started. Is it the European model of preserving jobs so that we can come out of it faster, gain productivity, or is it going to be the U.S. model? I'll put a bet on it right now. The U.S. will win this one yet again. But we'll see. I think it's an interesting debate.

RAYMOND TORRES: Only one thing on that. One has to be very careful. If we are talking about the financial sector, I will very much agree that it's useless to try to retain jobs in a sector which was overinflated or, in the case of Spain, the construction sector, where 16 percent of people were employed in the construction sector of Spain. Job retention policies in a sector which had to downscale—and I suppose also the financial sector in the U.S. or the U.K.—it's meaningless.

But in otherwise profitable sectors, I think it's a question mark. We have to see with time what happens. But it's only to say, "Okay, let's get rid of people as soon as possible," in the middle of the crisis and get high unemployment in order to increase productivity. I find it a very difficult argument, even from the economic point of view.

DEVIN STEWART: That was going to be my question to David. It's just a mathematical truism that when you reduce the number of people employed, you automatically get an increase in productivity. When you made that point, it sounded like you were being sarcastic when you said, "Congratulations, America. You won again." That sounded a little bit joking.

Do you want to respond to that?

DAVID ARKLESS: I wasn't being sarcastic at all. It just seems that whatever you do, despite some of the inept or not quite accurately deployed macroeconomic policy in the U.S., you just keep winning because of your huge economic power and capital asset situation.

I'm worried about the deficit, just like you. But when you get a situation like this recession and the impact on jobs, it's like piling horse manure on top of horse manure: Even worse things happen. We just finished an analysis globally of what happened to investment inside of companies during this recession. Of course, the big companies that exist on reinventing themselves through research and development have, on average, cut their R&D budgets over the last year by half, which, as you know, is one of the problems for the future. One of the first things that happens in a recession like this is that capital is cut off or becomes way too expensive for the companies that actually grow the economy, which are small to medium-sized enterprises.

Somehow, we have to get that thing ratcheted up again. I would like to see a move away from the maintenance and survival of certain things in the financial sector to really getting money and capital flows going to companies that are creating jobs, that are investing in research and development, and are, especially, small to medium-sized enterprises, because that's the lifeblood of the economy, as far as we see it.

DEVIN STEWART: Absolutely. That was in the State of the Union address.

DAVID ARKLESS: I must have been right if it was in the State of the Union.

DEVIN STEWART: I hope the manure problem spurs some technological innovation. Maybe we can have electric cars or something.

I'm going to get to you in just a second. I just want to follow up on this mood question. Maria, you and I were joking before this conference about the European mood and the gloominess. Do you have any comment about the European mood and hiring and whether there is any hope brightening the outlook there?

MARIA JEPSEN: There is always hope. I think the way that the European countries are reacting today is the right way. What they are doing is they are keeping up the confidence of the consumers and they are keeping up the confidence of enterprises. They are trying to make sure that the economy does not collapse. So I think what they are doing is right. I think they did not have any other choices than to invest in what they did invest in.

I completely with what you were saying, David, about getting capital to the small and medium enterprises. I think there is a role here to be played by the banks. They have been completely bailed out. Now they have to start bailing out the economy as well and not just sit on their money and speculate. I think there is a huge moral issue to be addressed by the banks, in that they start playing a bit as well and not just sit there and try to make a double dividend by playing on the financial markets once again. That I think we need to attack.

I want to raise an issue that we haven't raised yet, and that's wages. We keep on talking about global imbalances, inequalities. We haven't raised the issue of wages. I would like to put on the table, what is the role of wage moderation, of downward pressure on wages, and the growing inequalities, as one of the root causes of the crisis? I think what we might experience going out of the crisis and into recovery is an amplification of this phenomenon where, if we go into a jobless recovery, downward pressure on wages will be even greater, inequalities will start growing even more, and we will get again a phenomenon of parts of the population getting into debt, to be able to live towards a level of life that they think corresponds to their aspirations, and once again we could get into a situation of over-indebtedness.

I completely agree with the fact that we have to start saving. But you have to be able to save, and to be able to save, you need to have an adequate wage. Having an adequate wage and a social security network that protects you against health risks and certain social risks actually enables you to do the saving.

So I think there are a lot of issues here that we haven't touched upon yet. It's wages and the social protection, which allows us to save.

QUESTION: One quick analogy, but I do have a question.

If you give six people fence posts and do not let them communicate, but say, "Build a fence," nobody is going to build a level fence.

If I made any one of you a benevolent czar and you can do anything you want—China, India, the United States, eurozone, the Manpower people—could you create a better future? In other words, it's like, "Woe is me, woe is me." And somebody else says, "Are things that good?"

Does anybody have a solution? Telling the problems over and over and over again, which were quite well articulated—I can put five more people up there and we will hear the same problems again. Tomorrow morning your panel will go up to Columbia and you will maybe say something different.

If you were in charge, unrestrained, does anybody have a solution that can be accomplished? Remember, systems engineering means taking everything into account and coming up with a solution—in other words, pluses, minuses, negatives, actions, and reactions.

DAVID DENOON: I don't accept it. I think it doesn't work. You have too many different local labor markets. You have too many different local capital markets, a whole set of different regulations and customs, so on.

I think global governance can work for a few very large international institutions. I think we might get some kind of global regulation of the very largest financial institutions. I don't think it's going to work in manufacturing.

But to come back to your basic point, I really don't accept it. It seems to me that you can't design good policy in any country if you don't have integrity about the public policy. In this country—and I think it's really important for Americans to understand this—we have been deluding ourselves. We have not had a candid discussion about what our future is going to be. Though we could get into the kind of microanalysis that David has discussed in terms of the labor market, I agree with Raymond. And I certainly was not implying that I favor a contraction of fiscal stimulus in the short run. But I'm talking about over the next three to ten years. The average American doesn't understand that they are going to have to make really big adjustments.

I guess I disagree with Maria's point. I think many people are going to have to have lower living standards, and we are going to have to accept that.

I just saw a statistic yesterday that stunned me. In the public employee system in California, there are 150,000 people who have pensions of over $100,000 a year.

There are a lot of Americans who would aspire to earning $100,000 a year, and these are people who are on pensions, getting that from the public till. That can't go on. There are going to have to be adjustments. Maybe those people are legally entitled to what they were offered, but the next generation isn't going to get that, in real terms.

What I'm arguing is—I certainly favor maintaining some fiscal stimulus, but it has to be gradually reduced, and not only do savings need to be generated, but savings need to be channeled in an efficient way. Sadly, our financial system over the last 15 years was channeling most of the investment into housing and into commercial real estate, and was not channeling it into manufacturing and the kind of R&D that David has mentioned.

If we don't have a candid discussion of this, then we are going to delude ourselves. This is not a short-term problem. This is a very long-term problem.

Also these accumulated off-budget obligations that the federal government has are legal obligations. The Congress has to step up and say, "We promised you this, but we're not going to be able to produce it."

Very few people get elected with that kind of program. So one of the reasons why I think there are so many people retiring from Congress is that they know what's going on and they don't want to be there when the tough decisions are made.

All I'm saying is that in this room, where we have an attentive public, people who presumably are foresighted, we should at least be candid with ourselves and recognize that our real incomes are already lower than we think they are. It's an illusion, because we have put all these obligations to the side.

I have friends who are calculating, "I'm going to get this from Social Security, I'm going to get this from my IRA, and I'm going to get this from my dedicated pension," and so on.

We won't be able to have that. The easiest answer that politicians are going to come up with is to inflate the currency. Unless all of these things are inflation-protected, we are going to have an enormous debate between those people who are claimants on the system and those people who are working.

My argument is, let's focus right now on where we are. If it's upsetting to some people, so be it. But this country has real incomes and real assets that are much lower than the stated figures, for the reasons that I have described.

RAYMOND TORRES: Your question is, if you have the choice and you have to say one—I would say two, the most important things that should be done, basically. I would highlight the following two, in this order.

The first one is certainly to fix the financial system. I think it's useful both in the short term and in the long term. In the U.S., but also in other countries, more or less 50 percent of the financial transactions were off the prudential control of the monetary authorities—in the U.S., a well-organized country. This financial irresponsibility is something which created the bubbles, including the housing bubble, and it's also depriving the real economy from resources. Even now, as we talk, despite the huge bailouts of the financial system, if you look at the indicators of access to lending, it's still very tight. In Europe there was a survey which appeared a couple of days ago. Still, I think, on average, 20, 25 percent of small enterprises have difficulty having access to lending. So the credit crunch continues even now, in the middle of the crisis.

So I think reforming—we know what to do. It's just doing it now. The real issue is the political economy. How do you force reform on the financial system? That I don't have an answer to.

But I think there is another one—there are many, many things that could be done, but I think another one would be extremely useful. I would rank that second. I think it has to do with China and the social protection in China. The global imbalances, the huge surpluses in China and the huge deficits in other countries, including the U.S., are in part due to the very significant savings rate in China. Of course, adjustment of the world economy would be easier if adjustment happened through one of the countries inflating its economy rather than another country, like the U.S., reducing very significantly the stimulus and the economy. Obviously, it's easier if it's the surplus country that does something to stimulate domestic demand.

I think to do that—you would say, what do you do?—there is the currency issue. But on a longer-term basis, I think social protection in China is absolutely central.

Why is it that Chinese people save so much? Because there is practically no pension system. There was a health system a long time ago. But you are the expert. They more or less dismantled that. People save, in part, because of precautionary savings.

It also has to do with maintaining a certain social stability in the country. It's in the interest of China, but also the world economy. It's the second or third economy in the world. For that, I think ILO has a very important role to play. It has to be well designed. We know the mistakes, how to create a social protection system. It should be well done. But it is possible.

If those two things could be done, then we still need some fiscal stimulus in the short term, but I think many, many of the issues could ease out.

DAVID ARKLESS: Having attended so many economic symposia this year, I agree fully with you. I'm sick of hearing the same talking heads talking about the same issues and doing bugger all about it, as we say in English. You say, what's the silver bullet on this one—

QUESTIONER: [Not at microphone]

DAVID ARKLESS: I'll just give you one where it seems to us, and I'll give you an example of where it's happening right now.

Believe it or not, many governments are exceptionally good at gathering together the finest intellectual process within a country, structuring the right things economically, coming up with the right policy, and then keeping both six-guns in their holsters and continuously shooting themselves through the foot. What happens is, in countries that we analyze and work with, this mechanism of either being able to or not being able to turn effective policy into practice is the single biggest issue. Again, I would hold up the U.S. as being a country that I don't think is that successful in turning outstanding policy into practice because of something that we have a code for in our company that we see. It's the politics of compromise, or the compromise of politics. Of course, the political agenda very often produces an inability to do sensible commercial, economic things. It drives us nuts in the commercial community when we see this.

If it was possible to find places where a government was good at turning policy into practice and then try and emulate that in some of the more developed economies—let me give you two countries right now that are doing that really successfully. I'm going to shock you with who they are.

The first one is Vietnam. Vietnam is going through everything that China went through in less than 5 percent of the time it took China to semi-evolve itself into a semi-market economy, and it's doing it very, very effectively. I was shocked. After meeting the prime minister in Vietnam, we went into the Ministry of Invalids and Social Affairs and we ran down on a set of issues that would make the labor market and the social structure much more effective in Vietnam. After spending an hour and three-quarters telling the top experts in the country, I thought, "They'll now ask us to leave and take the next plane out."

They just turned around and said, "Okay, we'll do that. We'll have a six-month program. We'll change all of it."

Guess what they did. They did it all in six months. Guess why Vietnam is leaping up the competitiveness rankings. Because the government has put in place a coherent skills-to-attract-more-foreign-direct-investment program, a foreign migration system which is controlled and keeps workers safe, programs to stop human trafficking in the country, programs to get every single young person literate in the country and give them access to further education.

As the prime minister said to me at Davos, "Hey, it's not rocket science." It really isn't. Where governments can effectively turn policy into practice, then they start to accelerate from a competitiveness point of view.

I'll tell you another one that is doing it right now. Egypt is going through a huge restructuring of its policy positioning to get very, very advanced labor market mechanisms into that country. I'll give you an example. They have decided that the industrial sector in Egypt is overmanned by around about half a million workers.

They are running a program to career-transition and train those people, half a million of them, to move into the service sector, which is growing rapidly in the Nile River Valley and Delta. It's awesome, some of the things that are happening out there.

I think someday big, developed economies are going to be looking at some of these emerging economies and going, "We need to learn from them with regard to how fast they can turn good policy into practice."

That would be my silver bullet—better mechanisms to do that.

DEVIN STEWART: Maria, do you want to give the last silver bullet, or shall we wrap up?

MARIA JEPSEN: I'll give one—a little bit more abstract, though, less concrete. That would be with regard to putting into place mechanisms that do not increase inequalities more than they are increased today, making sure that when we go out of the crisis, wage pressure is not too downward to create a downward wage spiral, to make sure that power balances are reinstalled between capital and labor, and make sure that what we talked about, the social bifurcation and what I call more or less inequalities in the developed part of the world, is not increased and aggravated, because this will get us into the same situation once again.

DEVIN STEWART: Now that we have solved all the problems, we can go home.

It's usually good to end on the recommendations, so I think that's a very elegant way to end.

I was going to bring up a couple of looming risks that came up during this conversation, but I'll leave you all to think about it, ruminate, and maybe write us an email or submit an article about it.

One is the overall worry of a double-dip, which I think is very likely. What happens next? When you have gotten rid of the conventional caliber guns, you have to go to the silver bullet. Will people have the courage to do that?

The other one is one that relates to extremism and all the nasty things that extremism brings about—these young people that don't have jobs. That seems to worry me a great deal. So maybe think about that.

But we do have the recommendations. We do have the future pitches right here. Join me in thanking our panel and the ILO.